Tuesday, March 31, 2009

The U.S. Treasury extended its promise to keep money market funds from breaking the buck. Money market funds are safe until September 18, 2009. That's roughly the one year anniversary of America's financial panic. The guarantee covers $3 trillion in fund assets. How much junk debt, like Lehman Brothers, do they own?

Regardless, Geithner won’t let it happen. Not when The Carlyle Group’s David Rubenstein and Arthur Levitt chair international and domestic reform efforts. The PEU boys want a mostly hands off form of regulation. Tim’s sovereign shift keeps global shadow bankers safe. It also protects the "too big to fail" commercial banks with their fingers in other countries.

The Iraqi government ordered 22 military helicopters through an intermediary, ARINC. The Carlyle Group purchased ARINC in October 2007. Defense Industry Daily tracked the story. It said:

WIRED’s Danger Room reports a $325 million contract to the Carlyle Group’s ARINC for 22 Mi-17s. That WIRED report raised a number of questions about the deal, beginning with its a cost that could be up to 100% more than other Mi-17 orders around the world. The report also questioned the lack of any competitive solicitation, despite the existence of numerous Mi-17 sources and brokers in North America and abroad.

Other elements have ARINC purchasing Russian helicopters and funneling them through a United Arab Emirates firm. How many middlemen are needed? How do multiple hands, each with a profit requirement, impact the final purchase price?

Welcome to American purchasing, buying that enriches friends. The Carlyle Group leverages this at every turn.

When the producer is many steps removed from the final customer, it's a disaster for price and quality. 100% markup on a sale? That should help Carlyle meet their targeted 30% annual return. (It turns out no helicopters have been delivered and the Pentagon approved another $80 million for the purchase. Carlyle's government connections continue to pay off for ARINC, not for the people of Iraq). The Government-Industrial Monstrosity is Eisenhower's Military-Industrial Complex on steroids.

Monday, March 30, 2009

The notational amount of derivatives held by insured U.S. commercial banks increased by $25 trillion in the fourth quarter to $200 trillion. The increase resulted from the migration of investment bank derivatives activity into the commercial banking system. Credit derivatives fell 2% to $16 trillion.

Taxpayers now backstop credit bets for the drunk pirates of the investment world. Meanwhile, Treasury's Geithner previewed a public-private partnership treasure chest. "Any of you boys want a 25% rate of return? Arghh!"

“Roads are the single greatest infrastructure element,” said Richard Chang, principle, Infrastructure Fund of Carlyle Group. “The public’s ability to deliver on such infrastructure is constrained, so the key is finding where private capital fits in.”

Odd, the public seems fully capable of delivering $13 trillion in financial interventions, including public private partnerships financed 97% with public funding.

Yet, that same government puts off health care reform to 2010 while giving away public capital and revenue streams to PPP's. Horse hockey! The logical fallacies can only be resolved with the lens of Corporafornication.

One half of General Motors new leadership team has private equity underwriter (PEU) ties. Kent Kresa will step in as interim Chairman of the GM Board. He is Senior Advisor to The Carlyle Group, a huge politically connected PEU.

Congress added on more nail to the coffin of investing by threatening to write national accounting standards. Do you want America's Hall of Shame writing standards for financial practices? Didn't they do enough by repealing Glass-Steagall? Bloombergreported:

Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent.

Take this interchange at a March 12 hearing of a House Financial Services subcommittee:

Congress produces poor quality outputs, like their Wall Street counterparts who packaged trillions in junk on the Greed & Leverage Express. Lobbyists mobilize money for Congressional campaigns, a.k.a. political greed. Didn't that get combination get the financial system into trouble in the first place?

It's time for some major breaks from the past. Securitization shouldn't restart, nor should Congress accept kajillions from influence buyers. The last thing our ignorant leaders should do is set standards for any professional group based on lobbyists' needs. Criminey, who thought America would act like a third world country?

Sunday, March 29, 2009

Wall Street greed and leverage imploded the world financial system. Yet, Treasury Chief Tim Geithner uses hair of the dog medicine to entice America's shadow banking system in participating in public-private partnerships (PPP's). Private investors have to pony up very little equity to play in PPP land.

One fifth of 15% is 3%. That's 33 to 1 public money to private funds. Yes, there's a difference between debt and equity, but taxpayers will provide up to 97% of the funding for PPP's. Greed? Investors expect double digit, even a 25% rate of return.

On Meet the Press Treasury Chief Tim Geithner said private investors in his proposed public-private partnerships (PPP's) could lose all their money. With Uncle Sam loaning six times equity and investing up to 4/5ths of equity capital, that's not a big risk. Private investors stand to lose their 3% equity in the PPP enterprise. They stand to gain a double digit, even 25% rate of return.

With $3 trillion in distressed assets, supply could exceed demand for years. That means rock bottom prices in an elastic market. I guess that's better than no market, but it feels like Tylenol putting the bad stock out through a resale chain.

How much more financial junk will wash through Tim's PPP's? He proposed rules allowing Treasury to wind down nonbanks, hedge funds and private equity underwriters (PEU's). Will it happen under massive investor redemptions or when shadow banks hold too much trash? Can they just hand their problem over to Uncle Sam vs. declaring bankruptcy with a court managing an orderly wind down?

Time will tell if taxpayers continue to fund private sector losses and executive incentive compensation. The trend isn't pretty. Corporafornication is always disturbing to glimpse.

In 1950, banks' share of financial intermediation was about 50 percent, it fell and then rose to about 48 percent in the mid-1970s, then declined to about 33 percent at the turn of the century. If one adjusts the data to include "credit equivalents" for the off-balance-sheet activities of banks, then the adjusted market share of financial intermediation for banks would remain above 40 percent in recent years.

From a national standpoint, seven percent (1/14) of bank financial intermediation is in credit equivalents and sits off balance sheet. From an institutional perspective (7/40), almost 20% of credit lies off bank balance sheets. Investors have no true idea of the company's exposure.

Add the mark to market change and financial statements may not be worth the paper they occupy. Poor quality killed Wall Street, Congress and the White House, and endangers the accounting profession. None of the aforementioned groups has the citizen's back. They have their hands in each other's pocket. (The graphic above is from CitiGroup.)

FASB modified mark to market accounting under pressure from Congress. They threatened to write professional standards for the accounting profession. I'd like to know what CPA Mike Conaway thought about it. His West Texas Republican peer threatened, "Don't make us tell you what to do. Just do it. Just get it done." Randy wasn't alone. Rep. Gary L. Ackerman, D-N.Y. added, "If you don't act, we will."

Guess who raised the flag of concern? Arthur Levitt, Senior Adviser for The Carlyle Group and ex-SEC Commissioner. He's concerned about politics impacting professional standards. I'll put it more bluntly. America goes down a dangerous path when ignorant or tainted politicians write professional standards.

FASB should've fixed the off balance sheet problem, the one imploding companies overnight with investors clueless as to why. Credit and other derivative accounting is completely misleading. Forward looking contracts need addressing.

As a result of FASB's action and inaction, the public has little confidence in many balance sheets. Wall Street greed and leverage killed investing. Congress held a gun to FASB's head, as the accounting board threw dirt into the burial plot.

Hedge funds and buyout firms would also fall under the purview of a new regulator that would identify companies deemed “systemically important,” or capable of wreaking havoc on financial markets. Officials would have the authority to seize these firms if they threatened the markets, much as they do now with insolvent banks.

There is a process to unwind "run amok" financial firms. It's called bankruptcy, but that doesn't come with taxpayer bailouts. For the global big money boys to hang on Uncle Sam's bottomless tit, it has to run through the Executive Department. How toothy is Geithner's regulation, the public tough side of getting Uncle Sam cover your backside?

Geithner proposed requiring hedge funds and private-equity firms to register with the U.S. Securities and Exchange Commission and to disclose information about their holdings. Once registered, the investment firms, including venture capital companies, would have to report information about their trades and counterparties to the SEC. The agency would share the data with the systemic-risk regulator, which could restrict the funds’ reliance on short-term financing and limit how much money they can borrow to maximize trading profits. The disclosures wouldn’t be made public.

Tim's toothless solution doesn't involve breaking up too big to fail, but backstopping it in secrecy. But the PEU boys say their is no risk to their operations. Isn't the government responsible for exploring illegal activity? Let's say The Carlyle Group knows one of its affiliates is approaching bankruptcy. What if they gave the word to a Carlyle European fund investing in distressed debt? A quick credit default swap purchase could lessen the Carlyle wide pain of an affiliate implosion. Who monitors such behavior? Back to original assertion of risk-less private equity firms.

While Rubenstein, who runs Washington-based Carlyle, said more regulation was unavoidable, the U.S. private-equity industry’s main trade group said its members don’t pose a systemic risk.

“Private-equity firms invest in companies, not exotic securities and their investors are long-term investors, eliminating the ‘run-on-the-bank’ type of risk that helpedcreate the current financial crisis,” Douglas Lowenstein, president of the Washington-based Private Equity Council, said yesterday in a statement.

Eliminating the run on the bank risk? Tell AIG Private Equity, which holds a chunk of an imploding Carlyle investment offering involving Freescale Semiconductor. What if AIG's PEU or another distressed investor needs its money back fast from Carlyle? And what if other investors hear of the run? Then Tim Geithner will step up with public money to make the big boys whole. Feel better? Now how else can Carlyle make money in the current reform environment?

Wednesday, March 25, 2009

Finally, someone said Tim Geithner's plans to takeover nonbank financial firms includes private equity underwriters (PEU's). The NYTincluded the Carlyle Group as an example. However, Carlyle isn't one firm that can be wound down in receivership. It's literally thousands of corporations.

Take ManorCare, Carlyle's huge nursing home affiliate purchased in December 2007. They diced that company's 500 facilities into separate business and real estate assets. They did so for liability reasons.

Carlyle has dozens of funds, each segregated. Those funds hold companies, many diced up like ManorCare. The private equity underwriter isn't too big to fail. It's too politically connected to miss out on taxpayer funded corporafornication.

AIG is desperate to shed assets, especially their aircraft leasing division. IFLC is being looked over by Thomas H. Lee Partners, Carlyle Group, and Greenbriar Equity Group LLC and Onex Corp.

How cheap can it go? Without financing IFLC could issue the dreaded going concern warning. That smacked IFLC's credit default swaps. How much does it cost to "insure" $10 million of their debt?

It takes an upfront payment of $3.35 million and $500,000 a year. Ten year coverage would cost $8.35 million or 83.5% of the principal. That's expensive coverage.

All this should drive the price of IFLC down to where Carlyle and company can make their 30% annual return target. The question is the taxpayer subsidy. How much will be direct vs. indirect in the private auction?

The Carlyle Group likes the insurance sector. They are in talks with Innovation Group PLC, an insurance software and outsourcing firm.

Collatoralized loan obligations from U.S. and Europe implode the balance sheets of insurance companies, banks and hedge funds. Reutersreported:

Already, holders of the lowest-rated CLO tranches are losing their interest income which is being diverted to pay senior noteholders, in what is viewed as a prelude to a wipeout that will ultimately see them lose their money.

Banks, hedge funds, asset managers and insurance companies are the buyers of CLO tranches, with hedge funds and asset managers typically piling in the riskiest tranches and banks in the safer AAA tranches.

Any damage from CLOs would follow on the back of writedowns by banks of more than $700 billion (476.8 billion pounds) from credit-related losses since the credit crunch began.The number of CLOs in distress is rising as the credit quality of their portfolios continues to decline. Moody's placed 2,600 tranches of U.S. and European CLO obligations totalling $100 billion on review for possible downgrade on March 4.

Bankers expect 25 percent of European CLOs to be in the vulnerable position of having turned junior fees off by April and the number could rise as high as 95 percent by year-end.

Here's the odd part. CLO's were used to finance private equity buyouts from 2005-2007. While the PEU boys renege on these loans, they ponder partnering with Uncle Sam to buy this very junk from banks. If they repurchase CLO debt of affiliates, they get a tax break, one totalling $25 billion in the Obama stimulus package.

Did Treasury Chief Geithner think banks would be willing to sell assets that weren't completely marked down? Geithner danced around the question, but on further probing signalled that Treasury was willing to pump more money into any bank needing further capital--including if it is a result of liquidating assets via the Treasury plan. I took this to me that Treasury is protecting all major banks currently standing, from failure.

So the FDIC and Treasury could pressure banks to sell toxic assets to public-private partnerships on the cheap, with a promise to make up resulting capital shortfalls. That might get Carlyle's David Rubenstein the 20% rate of return his private equity underwriter (PEU) requires.

From Geithner's comments, more regulation of the financial sector coming. You would think the people in the room (Rubenstein, Soros, Rubin, Levitt, Summers, Volcker, Schwarzman, Whitney, Altman, Binder) will have major input on what the regulations will look like. Geithner also mentioned the upcoming G-20 meetings and the fact that any changes in regulation will have to be global in nature. My thought, the One World financial plan is near.

It seems the lowest global common denominator goes beyond taxes and worker pay/benefits. Regulation is now included. Should this happen, the United States is controlled by global corporatists. The implied threat is big money boys will pack up their capital and flee to less taxed, lower paying, less regulated zones. Might they grab billions in American taxpayer provided capital and bolt?

In all the new talk about regulation, I've yet to hear private equity underwriters (PEU's) or sovereign wealth funds (SWF's) included. Did Tim speak to that? Senator Evan Bayh was present to watch the backs of PEU's & SWF's.

Treasury Chief Tim Geithner proposed new rules allowing the government to wind down large nonbank financial institutions outside of bankruptcy. Having the Executive Department take over institutions "run amok" provides the same benefits of bankruptcy. Tim sold the plan as allowing incentive compensation to be changed and creditors to be crammed down.

The Board of Directors can change incentive compensation. It's already within their power. The Treasury doesn't need to take over. Justice Department resolution, i.e. bankruptcy, allows all parties to be crammed down.

Treasury's proposal is a shift in power to the Executive Department vs. the Judicial. It's also a sign that "too big to fail" won't be challenged anytime soon. Mega-financial institutions want to be global giga-financial houses. Global shadow bankers (PEU's, SWF's, and hedge funds) are slated to save commercial bankers, with some seriously sweet terms. (PEU = private equity underwriter, SWF is sovereign wealth fund).

Monday, March 23, 2009

Treasury Chief Tim Geithner gave details on public private partnerships. The ventures will used government subsidized loans and taxpayer equity to buy toxic financial instruments from banks. The PEU boys like the plan (PEU stands for private equity underwriter). Bloombergreported:

“This ambitious program is structured in a way to attract private capital and help banks sell distressed or toxic assets,” said David Marchick, head of government and regulatory affairs at Washington-based Carlyle Group, a closely held private-equity firm.

Carlyle raised $1 billion to invest in this sector. They have a goal of $3 billion. While the Carlyle Group expects 30% annualized returns from most investments, it's willing to dial that down for guaranteed returns. Bill Gross from PIMCO cited an expected return in the teens. David Rubenstein, Carlyle Group co-founder told Robert Wenzel of Economic Policy Journal that Carlyle needs a 20% rate of return to participate in Treasury's PPP program.

Bonus fact: David Marchick is one of many Carlyle Group employees from the Clinton White House years. Others include Mack McLarty, Arthur Levitt, Chris Ullman, William Kennard, and Charles Rossotti. Who has more ex-Clinton staffers, Carlyle or the Obama White House?

Treasury Chief Tim Geithner announced a three part plan to relieve banks of junk financial products. One strategy establishes public-private partnerships. The plan allows leverage:

6 to 1 on debt

That means the government will provide low cost taxpayer, nonrecourse loans for 85% of the partnership. The remaining 15% is equity. The government provides leverage in the form of:

20 to 1 on equity

Public money could comprise 14.25%, while private investment firms pony up 0.75% of equity. Of course, the numbers could be less/more. How likely is that for the greed and leverage boys? They want to restart the old system to generate big profits. The ratio for splitting eventual profits is:

50/50 split

Wow, taxpayers could provide 99.25% of the capital and garner only 50% of the profits. PIMCO's Bill Gross expects returns in the teens, 13% or greater, from this program. Corporafornication is alive and well. America's shadow banking system wins again. (Note: I've seen numerous articles citing varying percentages. The statistics in this piece came from CNBC's coverage this morning. CNBC's afternoon reporting cites a 50/50 split on equity. That makes the private contribution 7% with public funding 93%. Still heavily skewed in favor of the private investment firm.)

Sunday, March 22, 2009

The U.S. government must be one ugly date. Treasury Secretary Tim Geithner will offer up to 97% taxpayer financing for public private partnerships (PPP). Private investors only need pony up 3% to have a shot a big profits from toxic bank assets. Up to 85% of funds come from cheap nonrecourse loans. If the products implode, the PPP can hand back the junk and walk away from the taxpayer subsidized loan.

However, those terms aren't attractive enough. What do the private equity underwriters (PEU's), hedge funds and sovereign wealth funds want? The NYT reported:

Banks won't lend money to developer Larry Silverstein to build three towers at the former site of the World Trade Center. They require public backing from the Port Authority of New York and New Jersey. How many billions of taxpayer money do those banks have?

Saturday, March 21, 2009

Financial public private partnerships (PPP) may be funded with 97% public and 3% private money. Loans would be nonrecourse, meaning Uncle Sam can't do more than pull back the bad assets. With a 3% investment, America's shadow banking system could see considerable green. Hedge funds and private equity firms stand to make yet another killing on the back of taxpayers. Tired of Corporafornication yet?

Recall the same shadow bankers produced the junk, choking the life out of large commercial banks. Private equity underwriters (PEU's) are buying back affiliate debt on the cheap, with a $25 billion Obama stimulus tax break to boot. The NYTreported on Uncle Sam's new partners:

Risk-taking institutional investors, like hedge funds and private equity funds, have refused to pay more than about 30 cents on the dollar for many bundles of mortgages, even if most of the borrowers are still current. But banks holding those mortgages, not wanting to book huge losses on their holdings, have often refused to sell for less than 60 cents on the dollar.

Taxpayer money and public private partnership bidding will bridge the gap of this market conundrum. Another sweet deal for PEU's and their shadow friends! FT!

One doesn't expect a bankrupt company to pay performance bonuses. Since the whole company cratered, why would individuals get bonus pay? Because this form of compensation is neither performance related, nor a bonus, it's nonsalary, nonbenefit, lump sum compensation. Consider the companies paying "bonuses" under bankruptcy:

Why don't creditors or shareholders deserve a shot at those funds? While the bankruptcy judge makes the final determination, management reveals much with their bonus requests.

Hawaiian Telcom Chairman Walter Dods said in a statement that it is important that the employees be compensated.

Once bankrupt, it's important that all parties be compensated, I mean bonused. Will The Carlyle Group continue to take a management fee from Hawaiian Telecom? Is the bankruptcy a plan to cram down creditors, given the huge debt Carlyle floated to acquire HT? Did any Carlyle distressed debt funds buy HT credit default swaps as the firm approached bankruptcy? HT bonds went from 102.75 cents on the dollar to 0.5 cents. But CDS holders don't have to own the underlying debt instrument. How many ways will Carlyle ring the register on HT's failure?

Friday, March 20, 2009

Goldman Sachs held a conference call on their nearly $13 billion in counterparty payments from AIG. As companies imploded last September, Goldman asked for more collateral from AIG. The NYTreported:

The insurer tried to settle its credit default swap contracts at a discount -- both before and after it received its first bailout last September. Goldman refused and ultimately secured everything it was owed by AIG.

Recall bankrupt Lehman Brothers credit default swaps settled at a deep discount. Of $72 billion in swaps netted to $21 billion, which turned into a $5.2 billion net funds transfer. Why should Goldman Sachs get "everything it was owed" by AIG? This is a much larger outrage than $165 billion in AIG bonuses. Goldman's $12.9 billion is roughly one tenth of taxpayer payouts to the global big money boys. Did everyone else get full payment on their credit bets through AIG?

I hope someone's keeping a tally on all the ways an imploded Wall Street sucks on the taxpayer wallet. How much has Goldman Sachs gotten? Let me count the ways. Of Goldman's $47 billion market cap, $23 billion came from taxpayers and $21 billion from government sponsored debt. That's $44 billion in corporafornication.

A United Nations panel of experts will recommend ditching the dollar as the sole reserve currency in favor of a basket of currencies. The Commission of Experts on International Financial Reform.will make a number of proposals to the United Nations next Wednesday, March 25. A Reuters story said:

Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday. It has significantly reduced the dollar's share in its own reserves in recent years.

Guess who just visited Vladimir Putin? Was it former cabinet members? Could it be representatives of the Council on Foreign Relations? Maybe corporate board members and international business consultants? How about private equity underwriters and their close friends? The answer is all of the above, including James A. Baker, III, Henry Kissinger, William Perry and other American dignitaries. Corporacrats are on the move.

AIG joined The Carlyle Group and UBS in taking U.S. client money offshore to avoid taxes. UBS and AIG got caught. UBS paid a fine for its misdeeds. AIG's tax deduction was denied by the IRS.

UBS agreed to pay a $780 million fine, while AIG ponied up $306 million with the denial of their assertion. AIG is suing for the deduction, thus their money back. It seems nearly $200 billion in taxpayer money isn't enough.

Thursday, March 19, 2009

1. The U.S. government mobilized $13 trillion to address the financial crisis.2. American citizens lost $13 trillion in wealth, with millions losing jobs.3. 13 firms (receiving some of the $13 trillion in support) owe back taxes.

Out of 23 firms, 56% welshed Uncle Sam's IRS. Funny, UBS helped 17,000 cheat on their taxes and the firm got over $64 billion in government money.

4. GM received $13 billion in funds and requested up to $17 billion in additional funds.

Treasury announced a $5 billion program to support auto suppliers. It guarantees payment for parts shipped to ailing car companies. One benefactor is The Carlyle Group, with numerous auto supplier firms. Heaven forbid, Carlyle ponies up any of their $40 billion in dry powder. Taxpayers sponsored corporafornication continues! Private equity underwriters (PEU's) win again.

The Carlyle Group is famous for throwing big money at high powered politicians capable of delivering government money. The private equity underwriter (PEU) paid $12.3 million, much of which went to a political consultant, Hank Morris. Morris helped comptroller Alan Hevesi, one of two people indicted in a New York State pension fund scandal. The Daily Newsreported:

Morris, a longtime Democratic consultant who also worked for Sen. Chuck Schumer, quietly registered as a financial broker just months after Hevesi took office in 2003. Few people are said to have known of his involvement with Searle & Co., which is located above a Greenwich, Conn.A Hunt Financial Ventures lawyer said the firm was told before it won $116.7 million in pension business to contact Morris, who instructed it to pay the referral fees to certain companies.

A political consultant pocketed at least $25 million in middleman fees from financial firms garnering pension fund investments. Influence buying Carlyle Group got the largest chunk of pension business. The Government-Industrial Monstrosity churns taxpayer money. Tired of it, yet?

Wednesday, March 18, 2009

The central bank will increase its purchases of mortgage-backed securities by $750 billion, on top of a previously announced $500 billion. It also will double its purchases of debt in Fannie Mae and Freddie Mac to $200 billion. The Fed also said it will buy $300 billion in long-term Treasury bonds.

America kick starts securitization. As for the long term Treasuries, did China quit buying U.S. debt? Maybe Zimbabwe will take their place.

Tuesday, March 17, 2009

The big money boys want to stay in charge of a revised global financial system. The Wall Street Journal offers the latest in hegemony, the Future of Finance Initiative. Treasury Chief Geithner will give the keynote address.

It may sound like music to David Rubenstein and company. The Carlyle Group co-founder joins his private equity underwriter (PEU) peers. He snuck in Carlyle Senior Adviser Arthur Levitt. Levitt is identified as an ex-SEC chairman on the guest roster. Funny, both Rubenstein & Levitt chair other efforts to revise the global financial system. I bet they keep PEU's out of the regulatory limelight.

Monday, March 16, 2009

Libyan President Muammar Gaddafi knows how to pull the strings of U.S. democracy. He hired a lobbying firm, spending more than $750,000 since September. The Livingston Group paraded Libyan interests to Congressmen and large firms capable of doing big deals (Exxon/Mobil, The Carlyle Group, & Northrop Grumman). Here are the odd coincidences:

1. Libya's lobbyist, The Livingston Group, pushed the first Gulf War.
2. Six Persian Gulf nations formed the Gulf Cooperation Council, an economic union between Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar and Bahrain.
3. President Gaddafi heads the African Union and wants to create an African economic union.
4. The Carlyle Group hosted a dinner for Gaddafi's son at The Washington Club in November (story reported by The Jamahiriya News Agency). FT has a follow up on Libyan ties to PEU's.
5. The Carlyle Group launched a $500 million Middle East and North Africa fund.

Colonel Gaddafi is a quick study on "democracy and free markets." Allow American branded multinationals or the U.S. military will pave the way.

Update 2-1-14: It turns out Goldman Sach invested $1.2 billion in Libyan Investment Authority funds in six stock bets in March 2008, all of which turned up worthless. It took a lawsuit to get details on the investments Goldman Sachs made on Gadhafi's behalf.

Sunday, March 15, 2009

The Daily Show's Jon Stewart excoriated CNBC and Jim Cramer for not verifying financial news. The Washington Post promptly announced it would shut down its business section. This morning's Money Issue of CBS News shows the media's haplessness. In a story on Presidential fortunes post White House, CBS reported:

George H.W. Bush made millions working for the Carlyle Group, a high-powered Washington, D.C. consulting firm.

The Carlyle Group is not a consulting firm. It buys and sells companies as a private equity underwriter (PEU). Carlyle's website says this about the PEU:

The Carlyle Group is one of the world's largest private equity firms, with more than $85.5 billion under management. With 66 funds across four investment disciplines (buyouts, growth capital, real estate and leveraged finance), Carlyle combines global vision with local insight, relying on a top-flight team of 480+ investment professionals operating out of offices in 20 countries to uncover superior opportunities in North America, Europe, Asia, Australia, the Middle East/North Africa and Latin America.

As part of the shadow banking system, Carlyle used greed and leverage to grow from $12.5 billion to $91.5 billion during the George W. Bush Presidency. Bankruptcies and write downs recently took the number down to $85.5 billion.

However, Carlyle stands to grow that number substantially with the coming Treasury public-private partnerships. They have a $1 billion fund to invest in toxic assets, with a goal of $3 billion. Four of Carlyle's sectors are prime for taxpayer supported growth, energy & power, healthcare, infrastructure and financial services.

Why would CBS describe The Carlyle Group as a high powered consulting firm? They own one, Booz, Allen, Hamilton. Is it poor research? Carlyle's mission sits on their homepage. It states:

Our mission is to be the premier global private equity firm, leveraging the insight of Carlyle's team of investment professionals to generate extraordinary returns across a range of investment choices, while maintaining our good name and the good name of our investors.

"Extraordinary returns" equals greed and "leveraging insight" means using high powered political connections. Affiliate Boston Private Financial Holdings got $153 million in TARP money. This occurred while Carlyle had $40 billion on the sidelines.

Private money will join hundreds of billions in taxpayer funds to help flagging U.S. banks, said Austan Goolsbee, economic adviser to President Obama. Uncle Sam will provide $1 trillion in low interest loans, which can be leveraged two to three times. The government may provide guarantees on toxic assets purchased on the cheap by private firms.

How much will they pay? The Carlyle Group can buy back affiliate debt for 23 cents on the dollar and postpone taxes for four or five years. They'll likely get toxic instruments at deep discounts, using taxpayer financing.

Mr. Goolsbee commented on President Obama's health care reform. Obama is open to taxing employer provided health insurance benefits. This was a George W. Bush strategy. If the employer loses deductibility and the employee retains it, expect a huge dump onto the worker.

The U.S. Chamber of Commerce could finally rid their members of that pesky health insurance benefit. President Obama met with the Business Roundtable last week. They clearly state the unfair burden of health insurance on American companies trying to compete in a global economy.

Corporafornication remains firmly in play. A.I.G.'s $165 million in bonuses for dragging the firm into a $170 billion black hole proves it.

Friday, March 13, 2009

The G-20 may kick the financial system reform can down the road. Instead they will focus on saving drowning firms. Bloombergreported:

“The Europeans want to use this as a forum to discuss global coordination of regulation, and the Americans are more interested in global coordination of firefighting,” said Randal Quarles, a former U.S. Treasury undersecretary and now a managing director at the Carlyle Group in Washington.

Uncle Sam usually gets his way, thus global regulation can wait. Funny. two Carlyle counterparts lead studies regarding regulatory reform. Cofounder David Rubenstein heads a World Economic Council effort, while Senior Adviser Arthur Levitt heads an industry reform study. How might private equity underwriters fare in a new regulatory framework? Quite well, I imagine. Who will watch our back?

Wednesday, March 11, 2009

Counterparty risk reached a record level on March 9, according to Credit Derivatives Research. Structured Credit Investor reported:

Counterparty risk among the world's largest derivative market makers has risen by 75% since the start of the year, with the bulk of the rise coming in the last three weeks.

The perceived risk of failure among the major OTC derivative market makers is in its highest percentile.

Citi and Barclays credit risk worsened, even as their stocks rose in value. Citi traded at 600 bp, the widest of any time in the index.

With credit derivatives worsening, two questions remain. One, credit default swaps signaled the September economic meltdown. What do they portend now? Two, taxpayers funded $50 billion in counterparty unwinding at AIG. How much is left?

Treasury plans to loan up to $1 trillion to private investors for the purchase of bank toxic assets. The private sector will leverage low interest taxpayer money two to three times. Treasury Chief Tim Geithner put off the details, yet again. Bloombergreported:

Geithner said the Treasury will provide “precise” details of the plan in the next few weeks. “People will see how it’s going to operate and then it will go into place over the following weeks and months.”

Tim sold the program with odd logic:

The leverage increases the potential rewards while reducing the risk, allowing investors to pay a higher price for the toxic assets.

Borrowing may allow a higher price. It also could allow more volume at lower prices. This sounds like a political sales job. If it's a bait and switch, what is Tim hiding?

What additional taxpayer guarantees are included for the private equity underwriter (PEU) boys? They got $25 billion in stimulus for buying back debt for pennies on the dollar. Citizens tapping their IRA's to save their house were ignored. Things are becoming more precise. Corporfornication lives.

Bernanke’s reply: “Well, my forecasting record on this recession is about the same as the win-loss record of the Washington Nationals.”The recession “surprised us in being more severe than anticipated,” he added. So the answer to Rubenstein’s question “depends critically on our ability to get the banking system and the financial system more broadly, not necessarily back to 2005, but back to a situation where…the markets are reasonably stable, and they… can perform their critical function of providing credit to the economy.

“If we can do that,” he said, “then I think that there’s a good chance that the recession will end later this year and that 2010 will be a period of growth.”

The Q & A occurred during Bernanke's address at the Council on Foreign Relations. CFR paves the way for U.S. branded multinationals to garner loads of business in recently transformed economies. They're doing a fine job, according to recent news reports.

Exxon instructed Iraqi's on how to structure their oil markets for investment. Reuters reported:

Exxon Mobil Corp is in constant dialogue with Baghdad to create the investment climate that would allow it to become a significant player in Iraq's energy sector, Exxon's chief executive said on Monday.

American banks shrugged off their ever imploding balance sheets for Iraqi business. The Washington Independentreported:

Representatives of U.S. banks, JP Morgan and Citibank and others came to Baghdad on January 28th, participated in an international banking conference that explored correspondent banking relations that would deepen commercial ties between Iraq and the international community, business community. Citibank has already established correspondent relationship services agreement with Iraq’s Warka Bank.

Rubenstein's Carlyle Group closed a $500 million fund focused on the Middle East and North Africa. BizJournals reported:

The D.C.-based private equity giant said funds will be injected into healthy, growing companies in such sectors as energy, financial services, health care, industrial, infrastructure, technology and transportation in the Middle East and North Africa (MENA) region.

How much will end up invested in Iraqi financial or energy firms? Rubenstein is known for his introductions of Paulson, Bernanke and other high level public/corporate servants. Such interconnections are amazing.

Monday, March 9, 2009

Ex-White House Homeland Security Adviser Frances Townsend will be the Keynote speaker at "The Future is Now", the 2009 SunGard Availability Services Software International User Group. Her talk is titled, "Crisis is Opportunity: How to Change from Within."

Will Frances share how she jumped on a plane to Saudi Arabia, rather than help with the White House Hurricane Katrina response? Will she share how that crisis became an opportunity for The Carlyle Group and Tenet Health? Neither corporate owner, responsible for Memorial Medical Center's 34 patient deaths, made Townsend's Katrina investigative report. Jeb Bush landed a spot on the Tenet board about a year after Fran's whitewash.

The Carlyle Group purchased LifeCare Hospitals weeks before Katrina sideswiped New Orleans. LifeCare lost 24 patients in the storm's aftermath. Ironically, SunGard changed hands about the same time. SEC filings state:

The Carlyle Group announced a new $500 million Middle East and North Africa fund. Washington Business Journalreported:

The D.C.-based private equity giant said funds will be injected into healthy, growing companies in such sectors as energy, financial services, health care, industrial, infrastructure, technology and transportation in the Middle East and North Africa (MENA) region.

The November dinner, in honor of Muammar al-Gadhafi's son, paid off. The Carlyle Group hosted the soiree at the Washington Club. The elder Gadhafi was elected Chairman of the African Union. He favors an economic union on the continent. What timing!

Sunday, March 8, 2009

What if Tylenol restarted their production lines without finding the cause of cyanide tampering? How many suffering customers would pony up to buy the pain killer? Very few. The Wall Street Journal reported debt securitization would soon restart.

Starting March 17, large investors -- including hedge funds and private-equity firms -- can obtain cheap credit from the Fed and use the money to buy newly issued securities backed by such loans."

Uncle Sam will spend taxpayer money to spark the engine. Who benefits? The WSJ reported:

The TALF effectively turns the Fed into a generous prime brokerage. The central bank lends money for up to three years to investment firms to buy bonds backed by assets like auto or credit-card loans. The Fed needs to lure investors back into the market for these asset-backed securities, or ABS, where new issuance has almost disappeared."

Hedge funds, private equity and sovereign wealth funds are the benefactors of taxpayer largesse. They get cheap credit and guarantees for stepping back into the water.

This same group is slated to be the savior for failing banks, via Treasury sponsored public-private partnerships. Private equity underwriters (PEU's) can garner cheap loans and financial guarantees for buying old toxic assets.

Amerca's shadow banking system rode the greed and leverage engine hard for years. It produced vaporware financial products. When push came to shove, part of the shadow system fled to the safe harbor of commercial banking. Now the rest of the dark boys are slated as Supermen.

The question of the week is who got $50+ billion in counterparty unwinding from AIG, mostly under the Bush administration. Did the shadow boys make out again? What to do with all that green?

Middle Eastern sovereign wealth funds are still fat from your $4 a gallon gas money. The UAE spent $4 billion in two days to buy more war toys.

PEU's, guns and money...Dad, get me out of this.

Update 4-12-11: TALF benefited the wife of Morgan Stanley CEO John Mack and the widow of Morgan's former investment banking head. Rolling Stone states the Fed handed out a trillion dollars to banks and hedge funds, almost interest-free.

Saturday, March 7, 2009

The global shadow banking system includes unregulated private equity. The Carlyle Group manages over $91.5 billion in assets. The private equity underwriter (PEU) owns both corporations and debt instruments in their various portfolios.

The economic stimulus package, passed by Congress, included $25 billion in tax breaks for companies buying back their debt. This provision was inserted by Senator Max Baucus, D-MT, chair of the Senate Finance Committee. How might this play out? The Peninsula, a Qatar daily reported:

“Private equity firms will spend 70 percent of their time shoring up their investments, 20 percent of their time shoring up their investor base, 5 percent trying to raise new money and 5 percent trying to do new deals,” says David Rubenstein, co-founder of Carlyle. Keeping the companies they own alive through a brutal slowdown is, as Rubenstein implies, practically a full-time job. Firms are attempting to restructure the debt in those companies, buying the debt of their deals either because it is cheap or to have a seat at the table when the companies hit the wall and control goes to the creditors."

The Carlyle Group lost one affiliate, SemGroup, to debt holders. They assure a seat at the bankruptcy table if more fall, like TPG's Aleris and KKR's Masonite International. Currently Carlyle is trying to restructure debt at Freescale Semiconductor and IMO Carwash.

Carlyle co-founder David Rubenstein also noted debt is cheaply priced. How many pennies on the dollar is that? For Carlyle's American Achievement Group it's 23 cents on the dollar. Add in the tax benefits and it becomes more attractive.

But what happens when one offering of Carlyle sells to another? Who's watching to make sure that goes fairly? Irish Stock Exchange Carlyle Capital Corporation sold debt holdings of other Carlyle affiliates at a loss of $30 to 40 million.

If Carlyle has an affiliate approaching bankruptcy, can they buy credit default swaps on that company's debt? Hawaiian Telecom, Edscha, Freescale and IMO are candidates for such a strategy. Recall, one doesn't have to hold the underlying asset to buy credit coverage. Who's watching that?

America's unregulated shadow banking system set up our global financial implosion. Who's ensuring a more sound future foundation? It can't be PEU's and their political lapdogs. They got us in this fix.

The Service Employees International Union withdrew from a broad health care reform coalition. NYTreported:

The coalition, known as the Healthcare Reform Dialogue, is led by the president of the American Hospital Association, Richard J. Umbdenstock, and includes representatives of doctors and nurses, patients and consumers, insurers, drug companies and employers of all sizes.

Peter S. Adler, president of the Keystone Center, a nonprofit group facilitating the discussions, said the dialogue started with 20 participating organizations and now had 18.

“S.E.I.U. and Afscme have left the table,” Mr. Adler said Friday in an interview. “They have voluntarily pulled out at this moment. We are trying to keep the lines of communication open.”

Things must have gotten tense on who would step up and pay for 48 million people to get health insurance coverage. Possible groups are individuals, unions, employers and the government.

SEIU President Andy Stern already weighed in on trends in paying for coverage. He said the following in summer 2006. Note he is the head of a health care workersunion.Andrew Stern, president of the Services Employees International Union. "We have to recognize that employer-based heath care is ending. It's dying. It will not return," he said Friday at a forum sponsored by the Brookings Institution, a Washington think tank.

If employer sponsored health insurance is dying, that means other groups need to pick up the slack. Is that what the fight is about? Should one hold onto their wallet or heart? The big one might be coming.

Friday, March 6, 2009

How many Carlyle Capital Corporations did The Carlyle Group have? One CCC declared bankruptcy in March 2008. Yet another is listed on the Irish Stock Exchange. Structured Credit Investor reported the Irish CCC sold its interests in four collateralized loan obligations sponsored by the Carlyle Group to certain affiliates of the Carlyle Group. CCC expects a $30 to $40 million loss from the move.

Congress passed a stimulus bill that included $25 billion in tax breaks for firms buying back their own debt. Was that the reason for the sale?

Irish CCC will keep mortgage backed securities issued by Fannie Mae and Freddie Mac. How might they play in the yet to be revealed public-private partnerships (PPP)? Will CCC be able to sell them at a profit to a PPP fund, guaranteed by taxpayers? Stay tuned.

Thursday, March 5, 2009

The Port of Oakland negotiated a public-private infrastructure partnership with Ports America Group (PAG). Ports America is controlled by private equity underwriter HighStar Capital, seeded with AIG money. If HighStar gets funds from President Obama's National Infrastructure Bank, will PAG double dip in taxpayer green, NIB funds and AIG money (80% owned by citizens)? Will they access Treasury money to buy back PAG debt for pennies on the dollar? Congress gave firms like that a $25 billion tax break. Not far behind HighStar is Macquarie, the Australian private equity infrastructure player.

The Securities & Exchange Commission negotiated another settlement for nefarious investment firm behavior. Specialist trading firms on four exchanges robbed customers of over $58 million from 1999 to 2005. The legal settlement comes with no admission of guilt and a fine.

This follows over a decade of executive stock option backdating, robbing shareholders. Most CEO's returned their profits while not admitting guilt.

The UBS offshore tax haven went on during much the same time as specialist pickpocketing. President Obama's Justice Department went light on UBS. The only executive charged in the widespread, long term illegal scheme lives in Switzerland and is not subject to extradition.

Poor quality killed investing. Off balance sheet items can implode a company overnight. Fringe financial activities can bring a company down. Ask The Carlyle Group about SemGroup. It failed from hedging, forward looking contracts. Investors are on their own. It's buyer beware, nearly everywhere, investing, food, medicine, toys, and politics. What's next? (I gave the SEC a pass on Bernie Madoff and Sir Allen Stanford)

Wednesday, March 4, 2009

Branson said the bank had fulfilled “the summons to the fullest extent possible without subjecting its employees to criminal prosecution in Switzerland.”

Federal authorities are seeking to force UBS, the world’s largest private bank, to disclose tens of thousands of names of wealthy American clients. UBS, which averted indictment last month and reached a $780 million deferred prosecution agreement with the Justice Department, turned over around 250 to 300 names as part of that deal.

Mr. Branson, who is testifying before the Senate Permanent Subcommittee on Investigations, said that “the bank has now done all that it can do to cooperate with the John Doe summons” — the federal effort to obtain the 52,000 names.

Branson told members of the United States Senate that Swiss laws trumped U.S. laws? What Justice Department negotiated for 300 names out of 17,000-20,000? That would be the President Barack Obama, clean up Washington, administration. UBS contributed $513,919 to the Obama campaign and was #3 on Rahm Emanuel's lifetime donor list. They're rubbing our noses in it.

It costs $7 million to insure $10 million in GE Capital debt for ten years. GE Capital credit default swaps require a $2 million up front payment, followed by $500,000 a year for ten years. The week Hank Paulson yelled fire to Congress, Wall Street investment house CDS's behaved wildly. Should we expect another emergency declaration?

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